What’s the right way to take money out of my IRA?

I'm going nuts trying to find out how to make my required withdrawals from an IRA. One bank does it automatically at the end of the year, but the other one doesn't -- I have two. There is more information than I could ever use all over the web about when to start, how to figure out how much to withdraw, etc. Just nothing about how to actually start tapping those investments (no forms or where to get them). How do I take my IRA distribution?

Thanks for your consideration.
-- Barbara

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Dear Barbara,
This is really a very basic question but a crucial one for anyone who is new to the process of taking money from a retirement account.

The answer is that you need to contact your IRA "trustee," which in your case is the bank where you have your IRA. The bank will have the form you need. However, you will need to tell the bank how much in tax you want withheld on your IRA distribution.

As far as calculating the amount of tax to withhold, you have not mentioned anything about your age or other income received, so I can only give you some general information to help you stay on track with the IRS.

Generally, traditional IRAs allow you to make tax deductible contributions to your account, where the money grows tax-free until you take a distribution. This is a great incentive for retirement planning, as it couples the tax deferral on the contribution along with the tax-free growth of the account.

You are allowed to take money out of your traditional IRA whenever you want. However, the IRS wants you to keep the money in the account until you are at least 59 1/2 or you could be subject to an additional 10 percent tax on the withdrawal unless you meet certain exceptions.

The IRS is very patient, but there is a time when you have to pay the piper, or in this case Uncle Sam. Generally, you have to take out a "required minimum distribution," or RMD, by April 1 of the year following the year in which you reach age 70 1/2. This is known as the required beginning date.

What happens if you don't take an IRA distribution?

If the distribution is not made or not calculated correctly, you may have to pay a 50 percent excise tax on the amount not distributed as required.

The RMD is calculated by taking your year-end balance of the previous year and dividing it by the applicable distribution period or your life expectancy as shown in the tables in IRS Publication 590-B, Distributions from Individual Retirement Arrangements.

Thanks for the great question and all the best to you.

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Judy O'Connor has been a practicing CPA for more than 25 years in the South Florida community and assists her diverse client base in all aspects of tax compliance at a local, state and federal level. Her clients consist of individuals, corporations, limited liability companies, partnerships and estates.

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